Default is inevitable. Discuss.

professore

dynamick wrote: »

source is cso qnhs

I don't agree with cutting public sector numbers in this way. If numbers have to be cut I would prefer if an outsider came in and picked out the bottom 5% by performance and fired them with minimal compensation. Instead we will lose those confident enough to leave and find work elsewhere.

Instead of making any PS redundancies that may lead to disimproved services, I'd prefer to see further pay cuts or increased pension levies.

Absolutely agree with this.

Slydice

I see the cost of insuring Irish bonds has risen to it's highest level ever ... again:
http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

I read on another website that this may be a signal of the "market" thinking we are now at roughly a 35% chance of default

dynamick

Going back to the thread title, a 35% chance is not inevitable

later12

CDS is probably the best way of measuring the perceived likelihood of a default based on a credit event; that is to say, perceived by those who have most to lose initially and directly by their investments. The perception of these key investors is most significant and one that we ought to listen to. At the moment, going on CDS data, their fears are growing steadily ('though not exactly alarmingly or rapidly)



This tells us that an Irish default is still not inevitable, and not only is it not inevitable, markets are not at all convinced that it will ever happen, or be allowed happen at all.

Things you have to factor into this side of the argument are that the CDS market for Irish, Greek and Portuguese sovereigns is and always has been small and tight, and that there are many investors who think that CDS are a bit of a con that have, by definition, no chance of ever being paid out in the event of a sovereign default, and also that they may be anticipating a form of restructuring as opposed to something as dramatic and unlikely as an outright or unilateral or aggressive default.

professore

I think the main point is if things stay as they currently are, i.e. current EU/IMF deal, banks requiring endless cash injections, shrinking economy, ever increasing taxes on a shrinking tax base, unemployment and emigration, and resultant widening or at best static deficit we will run out of money sooner rather than later. However I don't think the EU will allow things to stay as they currently are. There are rumblings of this already.

Merkel and especially Sarkozy have been shamefully playing local politics with all this so far.

The reduction in the corporate tax rate which is nonsensical in the first place and will make Ireland's problems much worse, has spectacularly backfired on Sarkozy http://businessetc.thejournal.ie/pwc-study-shows-irish-corporate-tax-rate-as-average-2011-03/ - this was also reported in the German press.

Merkel with her philosophy of "it will be all different after 2013" strategy, conveniently after her term of office.

All the above a rather longwinded way of saying that the bureaucrats who run the EU will do some sort of fudge with the Greek, Portugese and our debt which will prevent an outright default while allowing everyone to save face.

dynamick

If we keep with the austerity measures I'd guess we'll end up in 2015 with debt at 190bn and about 30bn of that used for recapitalising the banks. GDP should be around the same as debt at that stage.

Interest bill will be about 9bn/year. Income tax receipts will be about 14bn this year

I can remember interest on the national debt in Ireland being higher than total income tax receipts during the 1980s. I can also remember Belgium running a debt to GDP ratio of 100% for years. So neither of these situations is impossible- so long as we have the deficit under control.

The state will also own the entire banking sector which will be a saleable asset with underlying profits of 2bn, making it worth 15-20bn.

BostonB

Mike Feerick CEO of ALISON on the radio this AM suggested we might get a better deal from China, and we could become the gateway for China into Europe/EU. I dunno if this is fantasy or not. But it was an interesting idea I thought.

danbohan

dynamick wrote: »

If we keep with the austerity measures I'd guess we'll end up in 2015 with debt at 190bn and about 30bn of that used for recapitalising the banks. GDP should be around the same as debt at that stage.

Interest bill will be about 9bn/year. Income tax receipts will be about 14bn this year

I can remember interest on the national debt in Ireland being higher than total income tax receipts during the 1980s. I can also remember Belgium running a debt to GDP ratio of 100% for years. So neither of these situations is impossible- so long as we have the deficit under control.

The state will also own the entire banking sector which will be a saleable asset with underlying profits of 2bn, making it worth 15-20bn.

Interest bill will be about 9bn/year. Income tax receipts will be about 14bn this year

should be a real fun place alright as it was in 80s , people who keep saying we coped with similar in the 80s underestimate the hardship many people endured here in the 80s and they were only carrying a tiny fraction of the personal debt burden of nowadays

professore

dynamick wrote: »

I can remember interest on the national debt in Ireland being higher than total income tax receipts during the 1980s. I can also remember Belgium running a debt to GDP ratio of 100% for years. So neither of these situations is impossible- so long as we have the deficit under control.

From Wikipedia:http://en.wikipedia.org/wiki/Economic_history_of_the_Republic_of_Ireland#1980s

The 1980s in the Republic of Ireland was one of the state's bleakest times. An extremely irresponsible budget by the majority Fianna Fáil government in 1977, which included abolition of car tax and borrowing to fund current spending, combined with some global economic problems to ruin the Irish economy for most of the 1980s, causing high unemployment and mass emigration. The Charles Haughey and Garret FitzGerald governments made this bad situation much worse with more massive borrowing and tax rates as high as 60% (with one Fine Gael finance minister suggesting people were not being taxed enough). After joining the ERM in 1979, Ireland was also saddled for much of the 1980s with an overvalued currency, which wasn't rectified until the 1986 devaluation. Much of the capital borrowed in the 1980s went towards propping up this overvalued currency. Foreign investment, in the form of risk capital, was discouraged by all the evident difficulties.

This was also an era of political instability and extreme political corruption, with power alternating between Fianna Fáil and Fine Gael, with some governments not even lasting a year, and in one case, three elections in eighteen months. The problems were eventually dealt with starting in 1987 under a minority Fianna Fáil government but with help from the opposition led by Alan Dukes of Fine Gael under what was known as the "Tallaght Strategy", with economic reform, tax cuts, welfare reform, more competition and a reduction in borrowing to fund current spending. This policy was largely continued by succeeding governments. Considerable support from the European Union was the only positive aspect.

Have we learned nothing? Reading this looks like history repeating itself and a brochure for us to leave the Euro.

Taxes in Belgium for anyone earning above 30-40K a year amount to 60%+ of total income. I was on a very modest income of about € 20K/year (several years ago) and paid 35% tax on the TOTAL, i.e. € 7K or so. Also it was horrendously complex to actually work out how much tax you owed, everyone had to do their own tax return. If that's how they treat corporation tax then a rate of 0% would still make Ireland more attractive. Not sure if it's still like that but I would bet it is.

dynamick wrote: »

The state will also own the entire banking sector which will be a saleable asset with underlying profits of 2bn, making it worth 15-20bn.

In theory.

ei.sdraob

dynamick wrote: »

The state will also own the entire banking sector which will be a saleable asset with underlying profits of 2bn, making it worth 15-20bn.

Tell us so how much we have spent on the banks already, and how much more we will have to spend.

Scofflaw

professore wrote:

All the above a rather longwinded way of saying that the bureaucrats who run the EU will do some sort of fudge with the Greek, Portugese and our debt which will prevent an outright default while allowing everyone to save face.

After all the shouting and excitement has died down, and whatever one's opinion of the EU, this remains the most probable outcome of all, although it will actually be up to the politicians of the Council to allow it to happen.

danbohan wrote:

people who keep saying we coped with similar in the 80s underestimate the hardship many people endured here in the 80s and they were only carrying a tiny fraction of the personal debt burden of nowadays

Actually, I think most of those of us saying that are those that remember the Eighties.

cordially,
Scofflaw

professore

Scofflaw wrote: »

Actually, I think most of those of us saying that are those that remember the Eighties.

cordially,
Scofflaw

I grew up in the 80s and remember my dad being unemployed on and off sometimes for extended periods of time. He did all sorts of things, most of them legal to make ends meet and keep the family finances going. Back then we didn't have the generous SW that we have now either. It was very difficult to get credit so most people didn't have huge borrowings. The worst though was the lack of work. This stood out above all others as my memories of that time.

danbohan

Scofflaw wrote: »

After all the shouting and excitement has died down, and whatever one's opinion of the EU, this remains the most probable outcome of all, although it will actually be up to the politicians of the Council to allow it to happen.



Actually, I think most of those of us saying that are those that remember the Eighties.

cordially,
Scofflaw

well of course the people from the 80s and before ,like myself had ''suffering cleanses the soul '' hammered into us by the catholic church , that might explain it !

Noreen1

I got married in the 80s.

Times were very tough, taxes were high, wages fairly low, and unemployment was rife.

My eldest son is asthmatic.
I well remember working 5 12 hour shifts, and an 8 hour shift on Saturday, and spending every penny of my wages on the doctors bill and medicine - sometimes 2 or 3 weeks in a row. To clarify - I was earning around 150% of the average industrial wage at the time.

I don't remember the 80s with any fondness. It was a horrendous decade for many people - without any personal debt - and, personally, I dread any potential return to that type of lifestyle.

dynamick

BostonB wrote: »

Mike Feerick CEO of ALISON on the radio this AM suggested we might get a better deal from China, and we could become the gateway for China into Europe/EU. I dunno if this is fantasy or not. But it was an interesting idea I thought.

I think this occurred to a lot of people from the start of the crisis.

Honohan was in Shanghai last year trying to sell them AIB without luck.

I'm not sure what we could offer the chinese or what we want from them.

Do we want a low interest rate or debt forgiveness?
What would the chinese get in return that we could legally offer them without damaging our trading relationship with the EU?

If the Chinese wanted to use Ireland as a hub entry point to the EU with a big chinatown, they could do so tomorrow without paying off the state's debts.

later12

China are already in the market for EFSF and EFSM bonds... it is in their interest to see a strong and competitive Eurozone because of the fruit of that union - the Euro - as an alternative world reserve currency to pull on the weight of the dollar.

Anybody who thinks the Chinese have some altruistic interest in helping Ireland or Portugal outside of a broad European framework is, I'm sorry, grossly mistaken. The Chinese interest, quite understandably, is the Euro.

maninasia

dynamick wrote: »

There was a reduction in ps headcount of 3,800 in 2010 following a reduction of 20,400 in 2009. I don't think it's far fetched to expect that another 20,000 reduction can happen in the next 4 years. That's 1% reduction per year through not replacing people who leave.

Crazy stuff, reducing headcount doesn't automatically mean higher productivity, it's the productivity of the current workers that counts! Productivity per head...

Also, is it really saving money or are they going to be paid off big lump sums and pensions and then go on the dole?

professore

More news supporting the default option. This will be repeated over the coming years unless we discover lots of oil.

Irish Economy Shrinks Most in a Year on ‘Weak’ Spending

Gross domestic product fell 1.6 percent from the previous three months, when it increased 0.6 percent, the Central Statistics Office said in a report published in Dublin today. Consumer spending declined 0.4 percent and exports fell 1.4 percent. In 2010, the economy shrank 1 percent, a third annual contraction.

:eek::eek::eek::eek: so much for an export-led recovery!


http://www.businessweek.com/news/2011-03-24/irish-economy-shrinks-most-in-a-year-on-weak-spending.html

K-9

professore wrote: »

More news supporting the default option. This will be repeated over the coming years unless we discover lots of oil.

Irish Economy Shrinks Most in a Year on ‘Weak’ Spending

Gross domestic product fell 1.6 percent from the previous three months, when it increased 0.6 percent, the Central Statistics Office said in a report published in Dublin today. Consumer spending declined 0.4 percent and exports fell 1.4 percent. In 2010, the economy shrank 1 percent, a third annual contraction.

:eek::eek::eek::eek: so much for an export-led recovery!


http://www.businessweek.com/news/2011-03-24/irish-economy-shrinks-most-in-a-year-on-weak-spending.html

Exports do fluctuate from quarter to quarter.

On a year-on-year basis, exports rose 10.6 percent in the fourth quarter after a 13.5 percent increase in the third quarter. In a separate report, the statistics office said the current account surplus widened to 1.4 billion euros in the fourth quarter from 255 million euros.

Slightly better spin.

professore

..... In 2010, the economy shrank 1 percent, a third annual contraction ...

So in 2010 as a whole our economy still shrank.

http://www.businessweek.com/news/201...-spending.html
Exports do fluctuate from quarter to quarter.

On a year-on-year basis, exports rose 10.6 percent in the fourth quarter after a 13.5 percent increase in the third quarter. In a separate report, the statistics office said the current account surplus widened to 1.4 billion euros in the fourth quarter from 255 million euros.

Slightly better spin.

Yes but the current account is really only in surplus because we are not importing as much as before.

K-9

I'm not surprised by it at all. The drop in GNP is very hard to over come and exports aren't creating much job growth. With more tax rises and spending cuts to come, it isn't going to get much better.

I just pointed out that exports actually are doing reasonably well because you bolded their drop, so I assumed you attached some significance to it. There could be reasons for it, the poor weather eg.

professore

K-9 wrote: »

I'm not surprised by it at all. The drop in GNP is very hard to over come and exports aren't creating much job growth. With more tax rises and spending cuts to come, it isn't going to get much better.

I just pointed out that exports actually are doing reasonably well because you bolded their drop, so I assumed you attached some significance to it. There could be reasons for it, the poor weather eg.

Fair point. It did surprise me but I forgot about our relatively bad winter.

Slydice

McWilliams talking about our, now inevitable, default in his latest blog:
http://www.davidmcwilliams.ie/2011/03/28/playing-the-relegation-game
Playing the relegation game
March 28, 2011

Ireland is the Leeds United of the European financial markets and, when we default, it will be just like relegation.

Being relegated doesn’t mean you stop playing football every Saturday – you just play against opposition you thought were beneath you. But you still play football.

Similarly, defaulting doesn’t mean that you stop being an economy which buys and sells, trades, employs and provides a living for your people. You simply play at a different level. Yes, your standard of living falls a bit. Your cost of living does, too.

But you still compete. You borrow from different people, get benchmarked against different countries, and then you ultimately focus on getting promoted again as your economy turns around. This is the way the world works.

hmmm

Scofflaw wrote: »

After all the shouting and excitement has died down, and whatever one's opinion of the EU, this remains the most probable outcome of all, although it will actually be up to the politicians of the Council to allow it to happen.

Absolutely. Then we'll have to put up with SF/McWilliams crowing on about "see see we told you we had to do this" even though their solutions were on a different scale and would have exposed our society to enormous danger.

K-9

I'd say Leeds is a very good example except actually carry the analogy through.

8 years later and they are still in the 3rd tier of English football.

PeterIanStaker

K-9 wrote: »

I'd say Leeds is a very good example except actually carry the analogy through.

8 years later and they are still in the 3rd tier of English football.

The way we're heading, we'll be in the Saturday morning leagues without even nets on the goals.

fred252

K-9 wrote: »

I'd say Leeds is a very good example except actually carry the analogy through.

8 years later and they are still in the 3rd tier of English football.

how dare you!

its 7 years later. its the second tier and they're in the promotion places for the top tier.

the cheek

professore

PeterIanStaker wrote: »

The way we're heading, we'll be in the Saturday morning leagues without even nets on the goals.

And a 5-a-side team with all the emigration!

Euroland

PeterIanStaker wrote: »

Ok everyone, its time to acknowledge the elephant in the room.

No point in getting carried away with artificial optimism just because there'll be a new government in the Dail soon. It doesn't matter a damn what party sits in Leinster house.

Nor does it matter if its a coalition or a majority/minority single party administration.

I reckon the country will have to default sooner rather than later.

Thoughts?

Agree. If we don’t default now on the bank debt (or restructure it at 90-95% haircut) we will default at sovereign level within 2-3 years. The new government won’t survive anyway and we would have another election in 2-3 years time.

Euroland

dynamick wrote: »

I think this occurred to a lot of people from the start of the crisis.

Honohan was in Shanghai last year trying to sell them AIB without luck.

I'm not sure what we could offer the chinese or what we want from them.

Do we want a low interest rate or debt forgiveness?
What would the chinese get in return that we could legally offer them without damaging our trading relationship with the EU?

Yes, we will get lower interest rates than from our "ECB partners".

PeterIanStaker

So two huge "superbanks" is the plan.

Rising majestically from the ashes and all that guff.

When are we going to be forced to bail out the superbanks?

loldog

PeterIanStaker wrote: »

So two huge "superbanks" is the plan.

Rising majestically from the ashes and all that guff.

When are we going to be forced to bail out the superbanks?

Too big to fail? Make them bigger!

.

PeterIanStaker

loldog wrote: »

Too big to fail? Make them bigger!

.

that's what they said about the Titanic . . . .

View

PeterIanStaker wrote: »

So two huge "superbanks" is the plan.

Rising majestically from the ashes and all that guff.

When are we going to be forced to bail out the superbanks?

I don't think it is a case of superbanks, much less huge ones, rather it is is more a case of:

Big Bank A + Medium Banks B & C -> Medium Bank X

and:

Big Bank D + Medium Banks E & F -> Medium Bank Y

If it works we end up with:

Value of Medium Bank X > 0

and:

Value of Medium Bank Y > 0

At which point, if we are smart, we sell those two banks to big international banks and put a constitutional ban in place on the entire concept of "Irish banks" so we never have to re-visit this mess ever again.

PeterIanStaker

I've a poll over in AH on whether or not we should default.

Slydice

Colm McCarthy in the irish independent and over on the irish economy blog discussing issues including and/or related to default.

indo article:
http://www.independent.ie/opinion/analysis/ireland-has-lost-capacity-to-borrow-2607416.html

irish economy blog:
http://www.irisheconomy.ie/index.php/2011/04/03/what-irish-bond-prices-are-saying/

Idbatterim

McCarthys independent artilce really hits the nail on the head, seems that NEW ERA, is actually no different from FF ERA!

ei.sdraob

Cue people around here proceeding to call Colm a "doom monger" and accuse him of "talking down the economy" :rolleyes: when all he is a realist telling is how it is.

danbohan

ei.sdraob wrote: »

Cue people around here proceeding to call Colm a "doom monger" and accuse him of "talking down the economy" :rolleyes: when all he is a realist telling is how it is.

garret prob label him a celebrity now as well , ogh the shame !

ei.sdraob

danbohan wrote: »

garret prob label him a celebrity now as well , ogh the shame !

Garret really let himself down with his article, while yes its no secret that DmCW makes a living out of being a dramatist, to call him dangerous to the economy reminds me of FF tactics of before :mad:

Does he really think that someone who is about to invest millions/billions in Irish bonds would not have the money to hire someone to research the market and instead of listen to some irishindependent collumnist and drama queen ?

Ive lost all respect I had for him, I suppose from someone who had the bright spark to tax children's shoes, now wonder.

K-9

ei.sdraob wrote: »

Does he really think that someone who is about to invest millions/billions in Irish bonds would not have the money to hire someone to research the market and instead of listen to some irishindependent collumnist and drama queen ?

Well going on some investors track record, no!

fred252

Slydice wrote: »

Colm McCarthy in the irish independent and over on the irish economy blog discussing issues including and/or related to default.

indo article:
http://www.independent.ie/opinion/analysis/ireland-has-lost-capacity-to-borrow-2607416.html

irish economy blog:
http://www.irisheconomy.ie/index.php/2011/04/03/what-irish-bond-prices-are-saying/

one of his main points is about the wasted decade of the 80s. wasn't the main factor in this decade being "wasted" the stubborn refusal to devalue the punt and once we did devalue the economy started to revive? he doesn't allude to this or the fact that membership of the euro means this economic policy tool is unavailable to us.

Jaysoose

The part of the article that struck home with me is that ireland is currently signed up to overspend by 40% yet again. How long can we continue to do the same things and hope somehow we get out of this mess before its to late. Its like the entire politicial class have their fingers in their ears.

"Errors are excusable but repeated errors are unforgivable"

ei.sdraob

K-9 wrote: »

Well going on some investors track record, no!

Considering these bondholders got paid on debt that was not even guaranteed

Then they did a good job :rolleyes:

professore

Again, why did Cowen and Lenihan unconditionally guarantee all the banks? I thought a limited guarantee of the systemic banks (AIB and BofI) made sense, to stabilise the system and give them time to sort the problem, and separate the wheat from the chaff (lots of chaff!!!). Put a limit on it, say 3 - 4 billion. An open-ended guarantee is madness. Get an insurance company to do it!

Whatever about anything else any idiot could see at the time guaranteeing Anglo (almost typed Angola there, more appropriate actually!!!!) was insane. The only reason I can possibly see for it was political old boys network.

So I think default is inevitable now, not just for Ireland, but for Greece and Portugal. Portugal are playing ostrich too at the moment. Once Portugal goes (I give it 6 weeks max) then Spain is next. Do you believe the Spanish banks? I believe them in the same way I believe a Spanish player's claim for a penalty after an extravagant dive in a World Cup game. I was in rural Spain in a mountain town 2 years ago visiting a good Spanish friend and the parallels with Ireland were extraordinary. Huge apartment blocks that could hold 3 times the town's population, and this is nowhere near any tourist centre.

I can see noises coming from Germany that they are getting fed up with the whole thing, and they have a point. They have endured years of austerity to get their economy back on track after reunification, and now they have to bail out the whole Eurozone? They see the Euro's outer defences falling one by one, and it's only a matter of time before a tsunami of debt floods over them. Merkel is trying to crawl to the next election and leave the mess for someone else to clean up. I personally don't think she will make it, as this will all blow up over the next 12 months. In all this I am surprised at the power she yields, I never thought of the EU as a German commonwealth before, but that's effectively what it has become - or maybe it always was and I was too blind to see it.

I do not believe that the German taxpayer will end up paying the bill for this mess. I am not impressed that no politician in Europe is willing to grasp the nettle and admit we need radically new solutions to get ourselves out of this hole. They are acting like an alcoholic who can't admit he has a problem.

None of this changes the fact that default or no default, Ireland is in for a really rough time over the next several years. I think a default of one sort or another is inevitable TBH. Sorry for the rant, but that's how I see it.

ardmacha

I've a poll over in AH on whether or not we should default.

I hope the IMF and the bond markets are not reading AH, otherwise it is all over!

ei.sdraob

ardmacha wrote: »

I hope the IMF and the bond markets are not reading AH, otherwise it is all over!

Garret is that thou

professore

Slydice wrote: »

Colm McCarthy in the irish independent and over on the irish economy blog discussing issues including and/or related to default.

indo article:
http://www.independent.ie/opinion/analysis/ireland-has-lost-capacity-to-borrow-2607416.html

irish economy blog:
http://www.irisheconomy.ie/index.php/2011/04/03/what-irish-bond-prices-are-saying/

Slydice, hadn't seen these two before. They nail it in clear concise terms. Thanks.

professore

professore wrote: »

So I think default is inevitable now, not just for Ireland, but for Greece and Portugal. Portugal are playing ostrich too at the moment. Once Portugal goes (I give it 6 weeks max) then Spain is next. Do you believe the Spanish banks? I believe them in the same way I believe a Spanish player's claim for a penalty after an extravagant dive in a World Cup game. I was in rural Spain in a mountain town 2 years ago visiting a good Spanish friend and the parallels with Ireland were extraordinary. Huge apartment blocks that could hold 3 times the town's population, and this is nowhere near any tourist centre.

I'm beginning to think David McWilliams is stalking me!

http://www.davidmcwilliams.ie/2011/04/04/economist-mcwilliams-says-ireland-is-microcosm-of-spain

later12

Read a depressing editorial in the FT this morning highlighting some points that some may nevertheless find interesting

http://www.ft.com/cms/s/0/b6a24d88-5e22-11e0-b1d8-00144feab49a.html#axzz1IZ0f4bLg

The €24bn committed last week corresponds roughly in size to the pension reserves Ireland had built up by the end of the boom; and also roughly to the amount of unsecured bonds – without a formal sovereign guarantee – issued by what were then private Irish banks. It was the previous government’s choice to use the former to backstop the latter. Under duress from its eurozone partners, the new government has made the same choice.